$30 tax mistake draws fine of $15K

This is a tax story that would have lit up the eyes of Franz Kafka, the deadpan poet laureate of bureaucratic absurdity.

May I wake up as a cockroach if every figure is not accurate, right down to the penny.

To begin, let’s concede that the tax man’s victim is not your typical object of pity. William Lerach, disbarred master of many class-action lawsuits against corporations, including Enron, served time in federal prison. In some circles, the wealthy Democratic donor is reviled; in others, he’s revered as a champion of small investors.

But all that’s immaterial to the case at hand (or at least I assume so).

The relevant fact is that Lerach now lives with wife Michelle in a 6-acre La Jolla estate upon which he pays more than $300,000 a year in property taxes.

On Dec. 1, Lerach believed he had fulfilled his semiannual civic duty early when he mailed a $154,225.54 check to the county tax collector. On Dec. 17, his records show, the check was cashed.

The next day, Dec. 18, Lerach went on a ski holiday to Colorado with his family.

He returned home Jan. 7. Going through a stack of mail, he came upon a letter dated Dec. 16 from Gerry Lee Ann Bishop of the Treasurer-Tax Collector’s office:

“Your payment(s) in the amount of $154,225.54 has been received and is not sufficient to pay the amount due. Your payment(s) will not be applied to the above referenced tax bill(s) until the full amount has been paid. The balance due is $30 if paid by January 06, 2014. Penalties/additional penalties may apply thereafter.”

In plain English, Lerach had messed up. He’d inadvertently written a 2 instead of a 5; his check, large enough to buy a Maserati, was $30 short.

Lerach went to a county office the next day, Jan. 8, and was told the penalty would be a $30 payment to make up for his mistake plus 10 percent of the total tax bill — $15,425.55. Lerach’s only option was to pay in full, which he did, and file an appeal, which he did. On Jan. 16, his appeal was denied. The denial letter, which asserted that the state tax code did not allow a penalty waiver, said the matter had been reviewed by the chief deputy tax collector as well as senior deputy counsel for the county.

OK, let’s look at this from a somewhat less exalted point of view.

Say you have a property tax bill of $2,000. You inadvertently shortchange the county 38 cents, or roughly .00019 percent of the total, which is about what $30 is to $154,255.54. You come in a day late with a perfectly reasonable — and provable — explanation (including plane receipts) for the delay in responding to the notice. Unmoved, the county charges you $200.38.

Dan McAllister, the county’s elected tax collector who told me he was aware of Lerach’s appeal, said the law’s the law and if Lerach had underpaid by one penny or $100,000 the consequences would have been the same. In his view, Lerach is at fault for not checking his mail. McAllister seemed proud of his adherence to the law, no matter how patently ridiculous.

Well, that’s especially true if the appeal process, which is designed to strain out manifest insanity, appears dysfunctional. No appeal for late payment was granted last year, McAllister said.

My two questions:

• Why even have an appeal process if this case doesn’t merit forgiveness? (I contacted Imperial, Orange and Riverside counties and learned there’s a degree of subjective discretion in granting appeals over late payment. Karen Vogel, Imperial’s treasurer, said that, while not knowing all the facts, she could imagine granting Lerach’s appeal.)

• In a sane world, which this one obviously isn’t, doesn’t it make sense to impose a 10 percent penalty on the unpaid portion, in which case Lerach would have been on the hook for $3?

“It just blows my mind that this could happen to anyone in this county,” said Dave Roberts, a supervisor familiar with the bizarre chain of events concerning his constituent.

The surrealist in me would love to see this case go to trial to settle the question: Is this $15,425.55 penalty reasonable? Is it even close to proportional to the offense?

In the fictional universe of Judge Kafka, the answer might be a soul-crushing yes.

In the real world, however, this failure to impose the test of logic would be laughed out of court.